BAX was my target a few days ago, and it’s back.We’ll see if I have better luck on Monday.

In any case, today I’d like to talk about something that
even sophisticated traders lose sight of: REAL RETURNS.

“Real returns” are the returns you are left with after
trading costs, taxes, and management fees.Any time you get a report from your management firm that only talks about “gross
returns" and not returns "net of fees”, RUN.Don’t walk,
RUN.Pull your money out of there and
flee as fast as possible.

The only returns that matter are net returns, after every
bloodsucker takes a bite out of YOUR retirement money.

For instance, here is the sector model – with gross versus
net returns:

The red line is the S&P500.

The blue line is gross returns on the (revised) sector
model.

The green line is NET returns, after taxes.

The green line is all that matters.Mutual funds and other managed accounts try
to report gross returns, but gross returns are NOT what you get.You can’t retire off of money you give away
through taxes and fees.

Even if you were to simply hold SPY and never sell until you
retire, you will STILL have to pay long term capital gains whenever you cash
out.The difference between gross and
net affects even those who simply hold index funds:

Gross SPY is in blue.

Net SPY is in red.It
is always 23.8% lower when you cash out.

So then, the question arises, just how much do you need to
outperform (gross) before you ACTUALLY outperform (net)?For most folks, even if they appear to
outperform SPY, they’ll still end up with less than they would have if they had
simply parked in SPY and forgotten about managed accounts.

Let’s say you have a managed account that rotates your
stocks at least once a year and charges you 10% of the profit.You’ll pay 43.8% in taxes, and another 10% in
fees.

Let’s just round it to an even 50% to make it easy.

Basically you have to DOUBLE the performance of SPY in order
to BREAK EVEN.

Anything less than double typical SPY returns, and you are
losing money.

Is your financial planner doubling SPY every year?

Ask them.

Get hard numbers and double check them yourself.If they get wishy washy on the answers, or
they try to misdirect you with talk of gross returns, run.

If they talk about “risk adjusted returns” and you have ten
years or more until you retire, run.